Wisconsin retirees could face 13 percent cut

December 29, 2012

MADISON, Wis. (AP) - Retired public employees in Wisconsin could see their monthly pension payments decrease by as much as 13 percent starting in May, the last in a series of reductions caused by the recession, the Department of Employee Trust Funds warned Friday.

Pension payments are based on the performance of funds managed by the State of Wisconsin Investment Board, as well as other actuarial factors like the number of retirees entering and leaving the system.

Payments to retirees invested in the Wisconsin Retirement System's Core Fund are smoothed over a five-year period, and the declines are the result of a 26 percent loss in investments in 2008.

Investments have been increasing every year since 2008, meaning payments to retirees should start to go up again in 2014, said ETF Deputy Secretary Rob Marchant on Friday.

"Although these cuts are painful, they are an important mechanism for insuring the system can pay all promised benefits," Marchant said. After this reduction is complete, retirees will have given back in excess of $4 billion, he said.

The projected decrease in payments next year comes after a drop of 7 percent in 2012, 1.2 percent in 2011, 1.3 percent in 2010 and 2.1 percent in 2009.

Joseph Papenfuss, a retired administrator from the Racine Unified School District, said he expected the drop.

"You just have to begin planning for that," said the 73-year-old who retired in 2000. "You just can't do everything you did in the past. It's the obvious. It cramps your style, is one way to put it."

While payments to investors in the Core Fund are smoothed over five years, they cannot be reduced below the level when the employee retired. That means about 58 percent of retirees are not subject to the full reduction, increasing the hit to the rest, Marchant said.

The actual amount of the decrease will vary based on each individual retiree and how close he or she is to the minimum payment, Marchant said. People who have retired since 2007 are already at their floor and won't see any reduction and the amount of the cut will slope up to the full 13 percent, he said.

All of the roughly 167,000 people in the system get at least half of their pension in a Core Fund annuity. Roughly 40,000 investors have money in the Variable Fund. There is no limit on increases or decreases in payments from that fund, which is tied directly to performance of the investments and not smoothed.

In 2011, payments from that fund increased 11 percent. They are projected to increase between 7 percent and 9 percent in 2013.

Any changes in payments, to be finalized in March, take effect on May 1.

Papenfuss said he advises fellow retirees to be patient and hopeful things will improve.

"I tell myself, swing with it," he said. "Just remember that the whole economy has been suffering and we're part of that. We're sharing in what many other people are suffering with as well."